Are HBCU Adding To Black's $$$ Troubles?

Shanon D. Murray, The Loop 21

ROCKVILLE, MD - As if we needed another metric to illustrate the wealth gap between African-Americans and others, a recent analysis of key outcome measures for 1,576 four-year public and private colleges in the U.S, shows that graduates of Historically Black Colleges and Universities are more likely to default on student loans.

According to an analysis of data provided by CollegeMeasures.org:
42 percent of the 116 colleges and universities with a default rate of 10 percent or higher are HBCUs.
HBCUs have the highest student loan default rate among all public colleges in 19 states. (There are only 21 states with HBCUs.)
Eight of the top 10 colleges and universities around the country with the highest student loan default rates are HBCUs.
Let’s put these findings in perspective. The national student loan default rate is 7 percent, which is the highest it has been since 1997, according to the U.S. Department of Education. Yet of the 105 recognized HBCUs that are either four-year public schools, four-year private schools, or two-year public schools, 50 HBCUs have student loan default rates of 10 percent or higher.

In response to the national 7 percent default rate, U.S. Secretary of Education Arne Duncan said: "This data confirms what we already know: that many students are struggling to pay back their student loans during very difficult economic times. That's why the Administration has expanded programs like income based repayment and Pell grants to help students in financial need."

If the national student loan default rate is of concern, the default rate among HBCUs is at crisis-level—for the entire HBCU system and its graduates.

The problem is multi-faceted. First, graduates may not be in the position to pay back their loans because many are remaining unemployed due to the bad job market. And, of course, unemployment hinders borrowers from paying off loans.

And even college-educated Blacks are unemployed at a higher rate than whites. The Economic Policy Institute (EPI), estimates that this year the unemployment rate for Black workers with bachelor's or higher degrees is on track to be the highest since 1979. In 2007, the unemployment rate for college-educated Blacks was 1.6 times the rate for college-educated whites. This year it is two times the rate for college-educated whites.

The other issue to help explain the high student loan default rate is the low graduation rates many colleges, including HBCUs, have year after year. Although students aren’t graduating —for whatever reason—they are still on the hook for loans they’ve incurred to help pay for whatever amount of education they did receive.

Finally, there are employed graduates who are defaulting simply because they aren’t taking personal responsibility for their debt.

When money gets tight, the first bill to often go unpaid is the student loan. But borrowers must remember that if their personal finances totally collapse, federal student loans can’t be discharged in a bankruptcy. Also, there are many dangers in defaulting on student loans, including making borrowers:
ineligible to receive further federal aid
less likely to get loans, credit cards and jobs
subject to higher interest rates
subject to the government taking repayment money from their paychecks and taxes
iWhile it is the responsibility of graduates to take their repayment of loans seriously, HBCUs also have a responsibility to keep their default rates down. All schools should assume the responsibility of increasing borrower awareness of their obligations. Further, schools should be held accountable for exorbitant default rates, especially if they are paired with low graduation rates.

Under current federal rules, all schools with default rates of 25 percent or greater for three consecutive years face loss of eligibility in the federal student aid programs. Schools with a default rate greater than 40 percent in the latest year may lose eligibility to participate in the federal loan programs.

According to CollegeMeasures.org, the school with the highest student loan default rate in the U.S.— at 34.6 percent—is the southern Arizona campus of the for-profit University of Phoenix. For-profit universities such as the University of Phoenix typically have higher default rates because they attract lower-income students who struggle to repay loans even while it’s unclear if degrees from these for-profit schools improve their employability.

Among schools with the highest student loan default rates, second place goes to Talladega College. Founded in 1867, Talladega is Alabama’s oldest private historically Black liberal arts college. The school has 339 students, of which 68 percent receives federal aid. Talladega has a 23 percent graduation rate and a 29.4 percent student loan default rate. The school charges the same tuition for in-state and out-of-state students—$6,700, according to CollegeMeasures.org.

While the Obama administration has developed new rules to address concerns about for-profit colleges and universities, maybe special attention needs to be paid to HBCUs. I believe it’s time to rationalize the number of HBCUs around the country and have a deep discussion about whether all of them are still fulfilling their purpose of educating students and properly preparing them for the real world.

Yes, such a discussion may lead to mass closings and consolidations of HBCUs that underachieve—as well it should. Alabama, for example, has 15 HBCUs—two four-year public (Alabama A&M University and Alabama State University); seven four-year private schools, and six two-year public schools.

Is every one of these schools necessary? Do they have acceptable graduation rates? Do they have acceptable ratios of student loan payments to earnings? Are they graduating students equipped to succeed in the 21st-century economy? These same questions should be asked of every other HBCU in the country—starting with the 50 schools with student loan default rates of 10 percent or higher.

Aside from romantic notions of the “Black college experience” and the very legitimate concern of valuable history being lost, it’s time to take a hard look at HBCUs and decide if drastic measures need to be taken.

Shanon D. Murray, an MBA and former financial writer and editor, is a personal finance blogger for TheLoop21.com.